Cry out! The Social Security benefit cut on the table in the debt limit talks

WASHINGTON -(Dow Jones)- Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks.According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically.

While that might “save” the government perhaps $220 billion, it could cost the nation’s seniors dearly. This is a shift to what’s called a chained CPI. The National Women’s Law Center explains what that means [pdf] for the people most reliant on cost of living increases.

Social Security benefits are adjusted annually to account for inflation—when the cost of living increases, benefits automatically increase so that their purchasing power does not erode over time. Shifting to the chained CPI would mean a cut in Social Security benefits for current and future beneficiaries, compared to the benefits they would receive under the current COLA. The cut would grow deeper the longer an individual received benefits, making this cut especially painful for women who have longer life expectancies, rely more on income from Social Security, and are already more economically vulnerable than men.

Shifting to the chained CPI has been justified on the grounds that this is a technical change to a more accurate way of measuring changes in the cost of living. However, the chained CPI is not a more accurate way of measuring changes in the cost of living for Social Security beneficiaries whose current cost-of-living adjustments, if anything, are too low.

Of course, while it will hit women particularly hard, it gets all retirees.

According to Social Security’s chief actuary [pdf] a person retiring at age 65 and receiving the average benefit would get somewhere around $500 less in their annual benefit when they reached 75, and about $1,000 less at 85. This would start next year, in 2012, and affect all current retirees, in addition to future retirees.

This is a cut in Social Security benefits, anyway you slice it. Social Security was supposed to be left out of the debt ceiling talks. It obviously isn’t. Even AARP is raising the alarm about this: “As the chained CPI would result in a lower cost-of-living adjustment (COLA) each year, reducing the COLA even by a small amount is a harmful cut for many retirees…. Now is not the time to accept any changes to Social Security as part of a deal to reduce the deficit. AARP will continue to protect this bedrock of lifetime financial security for all generations of Americans.”

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